SME Finance in Japan

Transcription

1 October 9, 212 SME Finance in Japan ー Experiences and Challenges - Financial System and Bank Examination Department, Bank of Japan Atsushi Miyanoya

2 1. Difficulty of SME Finance Small and medium-sized enterprises (SMEs) are extremely important to the Japanese economy. SMEs account for 44% of sales and 71% of employees in Japan However, SME finance generally faces the following difficulties. 1) Larger credit risk 2) Lack of reliable information on financial statements 3) Difficulty of securing loans by collaterals 4) Larger monitoring costs Furthermore, developing economies are likely to face the following difficulties. Shortage of domestic savings is likely to lead to credit rationing. Private banks tend to prioritize lending to large enterprises in terms of efficiency. Less developed legal and regulatory frameworks, which may impede the development of bills and other inter-company credit. 1

3 2-1. SME Finance in Japan: Experiences of the High Economic Growth Period The financial environment during Japan's high economic growth period was similar to what developing economies experience today. Large banks tended to ration credit, given excessive demand for borrowings and chronic shortfalls of domestic savings. <Major policy initiatives in Japan> 1) Establishment of private banks specializing in SME finance Creation of multilayered financial intermediation system 2) Enhancement of public support for SME finance Direct provision of long-term, concessional lending by government-affiliated institutions specializing in SMEs Establishment of credit guarantee corporations at the prefectural level to provide 1% guarantees of private banks loan losses. Companies pay inexpensive guarantee fees regardless of their creditworthiness. 3) Regulations on interest rates of deposits Regulations on maximum deposit interest rates ensure sufficient lending spreads to cover credit risks and operational costs (Chart 1). 2

4 (Chart 1) Interest Rate Spread bet. Lending and Deposit 1 (%) 8 6 Lending interest rate Deposit interest rate spread Note: Deposit interest rate = Ordinary deposit interest 3

5 2-2. Monetary Policy Response The Bank of Japan provided the necessary fund to private banks, secured with commercial bills and other corporate obligations (Chart 2) Banks Loan-Deposit Ratios and Dependence on Borrowings from the BoJ Loan-deposit ratio (%) The ratio of borrowings from the BoJ (%) All banks City banks All banks City banks Note: Loan-deposit ratio = Loans Real deposits + Bonds + Capital The ratio of borrowings Borrowings from the BoJ from the BoJ= Real deposits + Bonds + Capital + Borrowings from the BoJ 4

6 2-3. Lending to SMEs during the High Economic Growth Period This resulted in steady increase in the outstanding balances of lending to SMEs during the high economic growth period. Lending to Large Enterprises (LEs) and SMEs (Trillion yen) To SMEs To LEs (Chart 3) SME Lending Balances Lending to SMEs by Types of FIs (Trillion yen) Mutual banks, shinkin banks, credit unions Regional banks City banks, etc. Government-affiliated financial institutions Credit guarantee balance

7 2-4. Development of Supply Chain Finance Supply chain finance developed and played an important role in SMEs funding (Chart 4) SME Fund-Raising Structure (%) Capital (14.7) Other liabilities (18.9) Inter-company credit (41.3) 4 3 Other borrowings (.) 2 1 Financial institution borrowings (25.1) (FY) 6

8 3-1. Current Issues: Intense Competition among Financial Institutions (1) The abolition of deposit interest rate regulations (1985) led to smaller lending spread (%) (Chart 1) Interest Rate Spread bet. Lending and Deposit<repeated> Lending interest rate Deposit interest rate spread

9 3-1. Current Issues: Intense Competition among Financial Institutions (2) Financial position of corporate sector turned to surplus during the low growth period. 15 (Ratio to nominal GDP, %) (Chart 5) Financial Positions of Main Sectors (Financial surplus) Households Government Companies Domestic total FY (Financial deficit) 8

10 3-1. Current Issues: Intense Competition among Financial Institutions (3) Large enterprises have become less dependent on bank borrowings, as a result of the development of capital markets. 1 9 (%) Capital (26.9) (Chart 6) LE Fund-Raising Structure Bonds (6.9) Other liabilities (17.2) 5 4 Inter-company credit (16.) 3 Other borrowings (.) 2 1 Financial institution borrowings (33.) (FY) 9

11 3-1. Current Issues: Intense Competition among Financial Institutions (4) As a result, SME lending market has become more competitive. City banks and large regional banks increased their shares in the late 198s (%) Government-affiliated financial institutions ( Chart 7) SME Lending Shares Shinkin banks, credit unions Regional banks II (mutual banks) Regional banks Long-term credit banks, Trust banks City banks (FY) 1

12 3-2. Current Issues: Increase in SME Defaults SME default rates increased after the burst of economic-bubble. This also led to decrease in profitability of SME lending (%) (Chart 8) SME Default Rates FY Note: SME default rate = Credit guarantee corporations subrogation ratio 11

13 3-3. Current Issue: Roles of Public Support in SME Finance Although private financial institutions hold sufficient amount of deposits to advance SME loans, government-affiliated financial institutions (GFIs) have generally maintained their direct, long-term concessional lending to SMEs. GFIs still play important roles in supporting temporarily troubled SMEs hit by economic crisis and/or newly founded SMEs with little credit records. However, even SMEs with high creditworthiness also make constant use of GFIs and credit guarantee corporations. There are questions about the role of public sector in SME finance, from the viewpoints of both how to complement the private sector and how to prevent moral hazards. 12